On “Stability” and “Reforms”

Mykola Riabchuk

“Stability and Reforms” was the official name of the ruling coalition created in March by the Party of Regions with two minor satellites – the Communists and the Lytvyn Block. The name featured two major issues on the national agenda that hardly anyone would dismiss as marginal and non-urgent. “Stability” had to come first – to facilitate the “reforms”—and for this sacred goal, arguably, some constitutional subtleties could be ignored, procedural norms violated, and many civic rights and freedoms curtailed.

The first part of the program has been fulfilled rather successfully, bringing Ukraine more close to a police state than it has ever been since independence. The second part has proved to be much more difficult to accomplish.

So far, all the measures announced and, in some cases, introduced by the government appeared to have been either superficial or incoherent or both. The tax reform that targeted primarily small and medium-size enterprises provoked mass protests – the biggest ones since the Orange revolution – and forced the president to veto the law and suggest some cosmetic changes. The entire philosophy of taxation, however, was not reconsidered. And the main loopholes that enable the richest businessmen to channel their profits offshore, have not been blocked. This is likely to mean that the tiny island of Cyprus will remain the number one “foreign” investor of the Ukrainian economy, and that the list of top ten or twenty corporate tax-payers into the Ukrainian state budget consist mostly of international companies like Coca-Cola or Kraft or Tuborg and not local metallurgical and chemical oligarchs friendly to the government.

The administrative reform launched recently resulted, so far, in the reshuffling of some government agencies and personnel but no serious cuts in the bureaucracy, let alone an increase in its efficiency, accountability, or much-needed decentralization. In fact, the experts believe that the only noticeable result of this reform will be a further concentration of power in the president’s hands and strengthening of the Russian-style “vertical of power”. Not a single official implicated in a serious conflict of interests or covert corruption has lost his job. Even though it might have been a good opportunity for the president, if he was serious about reforms, to get rid of the notorious SBU chief Valery Khoroshkovsky who is also a major media tycoon, or the even more scandalous Interior Minister Anatoly Mogilov who received a $200,000 Cadillac as a “gift” from an unspecified benefactor – later revealed to appeared to be an unknown person who owned no property, and was virtually homeless.

The pension reform elaborated under IMF pressure supports primarily a gradual increase of the age of the retirees (first, women, from 55 to 60, then – men, from 60 to 65). But it does not address the relevant and equally critical issue – the huge discrepancy in the size of pensions, from $100 a month at the lower end (and the most widespread) and $7,500 (sic) at the top. This gap also means that the privileged 10% of Ukrainian pensioners – top officials, KGB veterans, and the like – get nearly as much money from the pension fund as the rest of the people.

The reform of the communal services and utilities pricing, however much-needed, is also aimed at extracting more money from the common people and not at restructuring and better management of the entire system. Still worse, no real taxation is imposed on real estate, luxury cars, and other extravaganza that may harm the interests of Ukrainian nouveau-riche. The price hikes and austerity measures are affecting primarily the lower stratum of population and not those at the top who run both the country and their own private businesses, without any real separation of these two activities.

And this poses a serious dilemma for both the president and his government. On the one hand, they really have to carry out painful reforms – not only because the IMF loans are conditioned by tough requirements but also because the country will go bankrupt if nothing is done. Yet, on the other hand, all the genuine reforms run counter to the deepest interests of the ruling class, of which the president and his government are just a part. No real reforms are possible in a systemically corrupt country without a radical cleaning up of the entire environment, rebuilding of institutions, and firm introduction of the rule of law. Not a single step has been taken yet in that direction in Ukraine.

As the watch group Transparency International reveals in its recent report, Ukrainians rate their judiciary at 4.4 (where 5 points is the worst, and 1 is the best), police at 4.3, public officials and MPs at 4.1, the system of education at 4.0, and business 3.7. One third of respondents (34%) confessed they had paid a bribe at least once over the past year. This is about the average for the post-Soviet countries (32%) but much worse than the average in the EU and North America (5%), or even in Latin America (23%) and Western Balkans (19%).

The situation may look really hopeless as long as the main institutions in charge of eradicating corruption – the judiciary and the police – are perceived as (and probably are) the most corrupt. But the same situation had been in place in Georgia under the post-Soviet regime of Eduard Shevardnadze. Today Georgia is ranked as one of the least corrupt countries in the world, with only 3% of the citizens confessing to paying a bribe last year. Appropriate policies, institutional reforms, and mass support of the population are certainly crucial factors in this success story. But the political will of the leadership, in this case of President Mikael Saakashvili, is probably of paramount importance. The most difficult task in any anti-corruption campaign is not to combat corruption in some remote customs, or police units, or provincial courts; it is rather, as everyone knows from personal experience, to say “no” to closest friends and relatives. This is where the “vertical of justice” begins and rule of law is actually enforced. If after the Orange Revolution Viktor Yushchenko had rewarded his cronies with state orders and decorations but not ministerial positions, we may have been living today in a very different country.

Today Ukrainians’ hopes dwell not so much on Yanukovych’s presumed patriotism and even less on the very doubtful civic responsibility of his oligarchic associates. The major hope, however slim, stems from the fact that they cannot manage the country any longer in their preferred soft-authoritarian style – like their Russian, Kazakh, or Azeri counterparts. The Ukrainian oligarchy has to choose – either to introduce radical reforms in the country, despite their short-time interests but with some hope for long-term rewards, or to establish a genuine dictatorship as the only way to vouchsafe their current parasitic interests for another decade or two.